EDITORIAL: Can Taiwan weather the US storm?

Despite concerns that a US economic slowdown would have a negative impact on Taiwanese exports, export orders rose 15.54 percent year-on-year to a record US$345.81 billion last year. Last month alone, exports rose 17.56 percent from a year earlier to US$31.02 billion, statistics released by the Ministry of Economic Affairs showed last week.

Given the brisk external demand for Taiwanese goods, people could wonder whether this strong performance is proof of resilience in the face of strong headwinds and a looming US recession.

Some have faith that rising demand from Asia could help Taiwan buffer its weakening sales to the US. The latest ministry data showed that Asian economies, especially Hong Kong and China, have emerged to become the biggest destinations of Taiwanese exports.

Last year, about US$91.42 billion in export orders went to Hong Kong and China, surpassing those to the US at US$84.53 billion, while total orders to Asia increased 18.71 percent from the previous year to US$178.57 billion last year.

But aggravating overseas financial turmoil and inflationary pressures worldwide are threatening to drag down global economic growth and therefore slow the demand for Taiwanese products.

The size of export orders has actually been on the decline for the past three months, with US$32.2 billion in October, US$31.89 billion in November and US$31.02 billion last month. It is not clear, however, if that decline was the result of seasonal factors or was triggered by the slowdown in the US.

Last week, UBS cut its forecast for global economic growth and predicted the US economy would slide into recession in the first half of this year. It said the slowdown would hurt Asia's export-dependent economies and named Taiwan, South Korea and most Southeast Asian economies among those that would be the hardest hit.

Citigroup last week also lowered its estimate for Asia's economic growth this year and predicted that Hong Kong, Singapore, South Korea and China would likely be the hardest hit economies in the region.

Standard Chartered Bank, meanwhile, cut its economic projection for Taiwan to as low as 2.7 percent this year because of concerns over slowing exports, and Goldman Sachs also reduced its forecast for Taiwan to 3.8 percent. It said Taiwan was the most vulnerable economy in the region because of increasing downside risk in the US high-tech markets.

No one knows exactly how a slowing US economy would affect customer spending there and to what extent a slowdown would drag down the world economy. But a global downturn is inevitable and no one is immune, not even China or India.

The situation can also become worse if the US government's US$150 billion economic stimulus package fails to kickstart the sagging US economy or the US Federal Reserve's emergency interest rate cuts last week fail to revive its economy. The US problem, as suggested by billionaire George Soros in an article published last week, is actually associated with a systemic problem -- an exploding credit expansion without regulatory checks.

The downside risk is greater and may have come earlier than expected. Taiwan's export sector will face more challenges this year as the economies in Europe have already started cooling down.

Several computer and electronics makers will begin this week to report their fourth-quarter earnings and their prospects for the coming months. The government is also scheduled today to release its monthly index of leading economic indicators, a key measure of the economy's direction over the next three to six months. Both private and public sectors should consider some countermeasures in the event of the looming US recession or global downturn.